December 14, 2015

The law has established a program for Clean Energy
Certificates and favors distributed generation. The goal of 35% clean energy by
2024 has been re-established, and businesses will have a 50% requirement by
2020. The bill is pending ratification in the Senate.

The law is the final program in Mexico's sweeping energy
reform

On Wednesday, Mexico's Chamber of Deputies approved the
Energy Transition Law (LTE) which contains goals and mechanisms for the
incorporation of renewable energies into the electric grid. The law, which
comprises the final phase of Mexican energy reform, will be sent back to the
Senate for ratification. The law had previously been stuck in the Senate for
more than one year.

The recently approved version of LTE establishes
intermediary goals towards obtaining 35% clean energy in the electricity mix by
2024, which Mexican President Enrique Peña Nieto recently committed to at the
Climate Summit in Paris. Additionally, the bill sets a 25% target by 2018 and a
30% target by 2021, as well as establishing an annual process for orchestrating
the penetration of clean energies.

The objectives of the Prodesen program for the years
2015-2029 call for the incorporation of 60 GW of new capacity to cover the
electricity demand for the coming 15 years. According to this roadmap, the new
solar capacity to be incorporated to 2029 is only 1.82 GW. The same report
estimates that the current installed solar capacity in Mexico is not greater
than 56 MW.

The law establishes also the details of the program for
Clean Energy Certificates (CEL), which will be provided with the establishment
of a public registry. These will be provided as the program begins in 2018 with
an initial 5% target.

Nonetheless, the approved regulations allow industry an
extension to 50% by the year 2020 of the obligations in front of the CEL when
“during the year of applying the obligation, CRE (The Energy Regulatory
Commission) determines that that total number of CEL registered do not cover
less than 70% of the total amount of obligations for each one of the first two
years” or if the price of the CEL in the auctions is greater than 60 investment
units (UDIS). However, the president of solar association Asolmex, Héctor Olea,
estimates that “a good compromise was reached with the industry”.

There have been difficult disputes in the last few months
regarding flexibility in the obligations with respect to the CEL. The National
Association of Manufacturing Industries (Canacintra) has warned earlier
this week against the obligation and industrial groups warned that the
introduction of LTE would lead to a 20% increase in electricity bills and could
potentially cause bankruptcies.

However, the National Solar Energy Association (ANES)
minimized possible impacts in a press release: “Assuming that energy costs
represented up to 20% of the total cost of manufacturing and that the cost of
CEL was equal to 20% of the cost of energy, this is going to increase in
increments of 0.2% the total cost of manufacturing and will not make any
company un-competitive”.

The law provides support to a Mexican commitment to
diversify the future grid. “The main point is to harmonize the clean energy
objectives,” states Héctor Olea of Asolmex. Others were less positive.
“This is not quite what I expected” said Iván Michel, a representative of
JinkoSolar in Mexico, who previously was responsible for renewable energy under
Mexico's Secretary of Energy.

Among the main accomplishments celebrated by the renewable
energy sector is keeping natural gas from being included as clean energy, which
was a struggle for the associations.

Asolmex estimates that there are 2 GW of PV projects which
can be executed in the short term. These could be accomplished by short-term
sales of electricity, bilateral contracts or auctions. However, there are
another 5 GW of PV that has been approved for construction by CRE whose future
is now uncertain.

The solar sector has a positive outlook on the pending
ratification of the LTE in the Senate. Additionally, measures to promote
distributed generation including tax breaks are expected.